Building a business isn't always (or perhaps even often) a clean, smooth
process. Management teams have to adapt to whatever circumstances come
along, whether or not they happen to be convenient at the time. In the
case of Helen Of Troy (Nasdaq:HELE) that means buying assets when they become available and suffering the short-term consequences in terms of margins, liquidity,
and returns on capital. If this works, though, and management can fit
these pieces together and start driving synergies in manufacturing and
distribution, the long-run returns could be impressive.
It's not uncommon to find at least one or two contrarian analysts on a well-known tech company, but the environment around Citrix Systems (Nasdaq:CTXS)
is more interesting than most. Simply put, there's a split between
analysts who believe desktop virtualization and an all-around focus on
cloud infrastructure will propel this into a major player, and those who
believe desktop virtualization will never really take off and that
competition in other markets will punish Citrix for its ambition. Where
there's a split like that, there can often be both elevated risk and
The run in commercial aerospace is on, and both Boeing (NYSE:BA) and EADS'
Airbus will be spending the next few years delivering on an incredible
backlog of commercial aviation orders. While there is still some reason
to worry about the quality of the emerging market order book, Boeing has
a rare opportunity to book several banner years of revenue and cash flow.
Unlike ConocoPhillips (COP), which I more or less blasted a week ago, Chevron (CVX)
is a major oil company with a pretty interesting near-term profile.
Although growth in the first quarter was not exactly torrid, the outlook
here for production growth in the next three to five years
(particularly oil/liquids production) is one of the best among the
majors. Better still, this company has a clean balance sheet, solid
profitability, and a focus on production sources that other companies
tend to avoid.
It's no great secret that I am a fan of energy equipment companies as a play on energy exploration and production growth. National Oilwell Varco (NYSE:NOV) is an 800-pound gorilla in the space, while Cameron (NYSE:CAM) looks poised to benefit not just from ongoing offshore/subsea
growth, but also a switch to a more oil-heavy onshore drilling
environment. The trick, though, is finding the right price to buy into
what can be highly cyclical and volatile stocks.
II-VI (Nasdaq:IIVI) is one of those quality small caps
that tends to stay under the radar. There's not much sell-side
coverage, and frankly not much institutional ownership by the standards
of this market. While II-VI still has yet to recover from the Thai
floods that disrupted business, the company's strong share in various
laser optics markets makes it one worth watching.
Whether it was a slight miss relative to consensus or post-earnings commentary from UPS (NYSE:UPS) management, Old Dominion (Nasdaq:ODFL)
sold off on April 26, 2012 despite a solid report. This company remains
one of the best stories in less-than-truckload shipping and a solid
growth story. While the valuation is still a little high, investors ought to give this one a look.
Nobody ever said that owning Weyerhaeuser (NYSE:WY)
was going to be exciting, but that's the nature of owning a company
focused on timberland and wood-derived products. This is a company where
value can accrete slowly by virtue of the company's timber assets,
sweetened by growing exports to Asia and an eventual recovery in the U.S. housing market.
I'm not exactly sure why, but specialty finance seems to have more than
its share of flash-in-the-pan growth stocks that come out of nowhere,
post a couple of years of great growth, and then all but disappear from
the scene. The risk of a repeat performance seems to weigh on the shares
of Green Dot (NYSE:GDOT), as many analysts project robust revenue and free cash flow growth, but seem to take a "no, you first" mentality to the stock.
Even good companies will try the patience of investors from time to time, and that's the story today on Brasil Foods (BRFS).
Although nobody really thought major export markets like Japan, Russia,
or the Mideast were going to turn around on a dime, they managed to get
even worse than expected. The good news, though, is that Brasil Foods
remains one of the strongest consumer plays in one of the largest
emerging markets, not to mention one of the best export-leveraged food
companies in the world.
Despite the shared obsession between corporate executives and Wall
Street over cost-cutting, costs are not necessarily Procter &
biggest problem today. Instead, the company may be paying the price for
getting too aggressive on price and too lackadaisical on product
innovation. With rivals like Unilever (UL) and Colgate (CL)
showing more in-store momentum, P&G investors may want to prepare
themselves for a few more quarters of unimpressive earnings reports.
Although I don't own it, I'm wondering if Sanofi (SNY)
may just be the model of what a Big Pharma ought to look like. The
company is exceptionally well-balanced geographically (with roughly 30%
exposure to the U.S., EU, and emerging markets) and has a complimentary
array of businesses that includes generics, vaccines, OTC, and branded
drugs. Sanofi also strikes a solid balance between drug types
(biologics, etc.) and pipeline risk/reward.
While Sanofi still has
some patent expirations to digest, this company actually has one of the
better growth profiles in the space right now. It also happens to look
Biopharma investing a big exercise in "hurry up … and wait"; there's a
lot of space to fill between the major pivotal clinical data releases
and FDA decisions, and while earnings reports are not trivial, they
don't often impact the long-term story all that much. In other words, if
you liked Merck (MRK) before, there's no reason not to now (and vice versa).
To whom much valuation is given, much is expected. That's about the only sense in which Novo Nordisk (NVO)
disappointed anybody this quarter. While this highly-focused
pharmaceutical company has been enjoying phenomenal success in diabetes,
investors may just want to check into the estimates that underpin the
valuation before committing their capital to these shares.
Britain's GlaxoSmithKline (GSK)
is relatively unusual among drug companies today. Not all that much
revenue is left vulnerable to patent expirations, the company has a deep
pipeline balanced between potential home runs and solid singles and
doubles, and only one drug accounts for more than 10% of pharmaceutical
sales. While the Street has already rewarded Glaxo with a healthy
valuation, there is still a great deal of debate as to the potential of
key pipeline candidates and shareholders could yet see upside here if a
few key drugs exceed expectations.
Tech hardware is all over the map right now, with investors still quite pleased with F5 (Nasdaq:FFIV), relatively comfortable with Cisco (Nasdaq:CSCO), and increasingly down on Riverbed (Nasdaq:RVBD) and Juniper (NYSE:JNPR).
The story with Juniper is an interesting one, as this company looks for
a revival in carrier spending and new products to return the company to
its familiar ground as a growth company.
For those readers who find it difficult to distinguish between comments
about a company and comments about a stock, let me be perfectly clear - Illinois Tool Works (NYSE:ITW)
is an excellent company in many respects. That said, the company's
market exposure and growth outlook leave the stock stuck in that gray
area where it is a worthwhile stock to hold, but not a compelling
candidate for new purchases.
Certain stocks torment investors with excellent performance and valuations that just never seem to get quite low enough. Welding equipment and consumables manufacturer Lincoln Electric (Nasdaq:LECO)
is one such company. While I would argue that this is one of the best
industrials that most people don't know about, the stock seldom trades
at a bargain. Although strong sales in North America are fueling
excellent growth today, perhaps fears of emerging market slowdowns will
take a little steam out of the stock.
Cereal and snack food giant Kellogg (NYSE:K)
has taken a very sharp turn from one of the best (and most reliable)
food company stocks out there to a "what the heck is wrong here?" story.
With European sales down double-digits and share losses in the core
cereal group, to say nothing of the challenges of integrating and
building up Pringles, Kellogg has a lot to prove before it becomes a
dependable food stock again.
Financial reports from packaged food companies haven't been all that
spectacular lately, as almost every company has had to raise prices to
preserve margins and suffer the volume consequences. Hershey (NYSE:HSY) looks like a pretty big exception to that rule, as the company rode serious price leverage to a very strong first quarter 2012. That said, Hershey is not cheap and investors need to ask themselves how much good news is already within the wrapper.
When the going got tough, Texas Instruments (Nasdaq:TXN)
went shopping. Not only did TI buy some businesses outright (like
National Semiconductor), the company also bought other companies'
fabrications and equipment. Now TI sits with an extensive amount of
chip-making capacity - if and when the recovery really kicks into gear,
the marginleverage could be impressive, but that capacity will weigh on results if the demand doesn't develop as expected.
It's probably cliché now to talk about how former high-flying tech stocks like Alcatel-Lucent (ALU), Ciena (CIEN), and Corning (GLW)
now trade at fractions of their former highs. Corning has never fallen
out of the groove in terms of technology or R&D, but instead found
itself in situations where high capex investments, industry
overcapacity, and price erosion crushed its ability to sustainably earn
its cost of capital.
Although Corning is not out of the woods yet,
it's more diverse now than it has been in a very long time, and the
company may finally be in position to see some positive economic
It's not uncommon for valuation
and enthusiasm to create gulfs between a company's performance as a
business and the performance of the stock, and that seems to be the case
for ARM Holdings (Nasdaq:ARMH).
While ARM's IP continues to spread across the market, the stock has had
huge expectations to fulfill and has made relatively little progress
since early 2011. Unfortunately, current valuations already presuppose
impressive ongoing penetration and would seem to leave little on the
table for investors.
Apparently Silicon Labs (Nasdaq:SLAB)
still has work left to do in finding the right mix of products and
addressable markets. Although this chip company's current results aren't
all that bad, the uncertainty about growth and margins is likely to
weigh on the shares. The stock does look cheap today, but it's difficult
to feel confident about a company that always seems to be in
Most observers seem to agree that the potash market is going to get
better as the year progresses, but just how much better is the $64,000
question for Potash Corp (POT) and investors in competitors like Mosaic (MOS) or Intrepid Potash (IPI).
Nobody's talking about another repeat of 2009, but the market continues
to play a game of chicken with shipment numbers and second-half
British drug giant AstraZeneca (AZN)
has recently been racing to fix the holes in its pipeline created by
several high-profile clinical failures. The question for investors is
whether the company is at risk of pulling a Wile E. Coyote and running
right off the edge of the cliff. Although AstraZeneca has more work to
do to fix the near-term outlook, long-term investors may have a brighter
future now than just a few months ago.
These are trying times for food and beverage companies, as managements
try to find the right balance between offsetting cost inflation through
price increases and maintaining stable volumes. While volumes were a
little challenged at PepsiCo (PEP)
this quarter, that's not the major challenge in front of the company.
The real key to the stock breaking out of a five-year funk may have less
to do with matching Coca-Cola (KO) or extending its lead over Kraft (KFT) as it does improving upon margins and free cash flow.
Waiting for a true, sustained recovery in carrier spending is starting
to feel like waiting for Godot. Although there have been a few bright
spots this quarter, Juniper (JNPR) and Ericsson (ERIC), even those are "yeah, but..." stories. With Alcatel-Lucent (ALU) it's even worse, as the company is falling short not only in sales, but may also be losing hard-won margin leverage.
Wall Street institutional investors are paid overreactors, but
individual investors have the luxury of taking a more patient outlook in
response to a disappointing quarter - that's the benefit of not being
judged (and/or fired) after every quarter. That's especially relevant as
a host of industrial companies post difficult first quarter earnings.
In the case of ABB (ABB),
a few things are clear. First, China has really slowed down, and parts
of Europe are feeling the pinch as well. Second, North America is
especially strong. Third, the basic equation of helping companies
operate more efficiently with respect to energy and labor is still
plenty popular out there.
It looks likes Check Point Software (Nasdaq:CHKP)
has come to an end, or at least a hard pause. While this leading
enterprise security company had a decent first quarter and the guidance
revision wasn't that bad, the fact remains that even a small
disappointment is all it takes for a tech stock to see large
disappointment from the market.
With Amgen's (AMGN) recent decisions to acquire emerging market generic drug companies, partner with Watson (WPI) for biosimilars development, and out-license non-core drugs to AstraZeneca (AZN),
there's really no more dispute that Amgen has graduated to the ranks of
Big Pharma. This isn't a bad thing; it just changes how investors ought
to approach and value the company. While there are patent and
competitive risks to this name, all in all it seems Wall Street has
taken an overly dim view of its prospects.
This is what an opportunity to buy Caterpillar (CAT)
at a decent multiple is going to look like. The stock is selling off on
what were actually solid Q1 results due in large part to fears tied to
emerging market growth (especially China). While there are indeed
relevant long-term risks that apply to Caterpillar, the global outlook
for mining and construction equipment is pretty promising unless you
subscribe to the idea that another global recession is on the way (in
which case few stocks are going to outperform).
Investors reacted positively to Lilly's (LLY)
first quarter earnings report, but there was actually little in the
news that impacts the long-term story here. Pressure on revenue and
margins is going to accelerate as the year moves on, and the company has
some make-or-break clinical data coming up. While bulls are right that
favorable data will push the shares considerably higher, there is a very
real chance that this stock could be yielding 6% or 7% in a year's
The good news and bad new on Zions Bancorp (Nasdaq:ZION)
is basically the same - current results are terrible, but the
longer-term outlook is pretty solid. Zions has a number of problems to
work through today, but the longer term branch footprint and asset
sensitivity are favorable. Unfortunately, the stock just doesn't look
cheap enough to be worth major accumulation today.
Here of late it seems like it's always something at Riverbed Technology (Nasdaq:RVBD). First, management blames turnover in its European operations for one bad quarter,
then it's a slowdown in order due to upcoming new products. Now it's
"poor sales execution" and deal slippage. When it all comes right down
to it, though, investors now have ample reason to ask if this management
team is one they can trust to deliver the goods on a sustained basis.
One of the reasons that conglomerates often used to carry discounts to
pure-plays was the fear/belief that management teams struggled to keep a
careful over all of the moving parts of the businesses in the stable.
In the case of United Technologies (UTX)
I can see the point. While UTC looks to be in excellent shape to
benefit from the ongoing commercial aviation upswing, I do worry a bit
about businesses like Otis and Climate Control.
Swiss food giant Nestle (OTCBB:NSRGY) has a well-earned reputation for excellence, and the Street has long been happy to pay a premium for that performance. That's all well and good for those who own shares, but it makes waiting around for an opportunity to buy a bit frustrating. With the stock still trading at a hefty premium, investors can find better deals in the food sector.
Health insurance stocks like UnitedHealth (NYSE:UNH) are a good bet to stay volatile as the Supreme Court considers its opinion on sweeping changes to the healthcare insurance industry. While this ruling will clearly impact the future trajectory of enrollment and medical costs, it seems relatively safe to assume that UnitedHealth will adapt with the circumstances and remain a leader in this large industry.
Some companies just seem to have a knack for making the wrong moves, and I fear that ConocoPhillips (COP) is one of those. While many of the company's decisions make sense on a passing glance (buying energy companies a while back, spinning off the refining business, etc.), they just seem to go sour in the hands of ConocoPhillips. Given the neither fish-nor-fowl nature of the post-split E&P business, I think there are better buys to be had in the oil patch today.
It amuses me that some sell-side analysts have already turned on Novartis (NVS) management and are calling for a break-up of the company. Such is the nature of working in a business where you always have to fight to get the buy-side to listen, I suppose. In any case, Novartis management has done itself no favors with a execution blunders across the enterprise and unimpressive growth. As such, there are still plenty of better ideas out there in pharma-land.
I don't envy Thulin Inge the job as CEO of 3M (MMM). Although 3M has an enviable record of strong internal product development and consistent (if not steadily improved) execution, it seems like it's never quite good enough for the Street. The bigger question I have, though, is whether 3M needs to become more aggressive to be a more compelling conglomerate investment.
I'll give Illumina (ILMN) management credit for at least one thing - in the wake of turning down Roche's (RHHBY.PK) buyout bid, they know they have to keep analysts and investors excited about the company's prospects, or the stock will suffer. Unfortunately, while Illumina's technology is largely first-rate, the expectations for this business still seem pretty aggressive.
GE Capital's rampant over-expansion and risk exposures didn't wreck General Electric (GE), but it came closer than it should have ever been allowed. While GE has been busy fixing the financing arm (largely by reining in operations), it has also been actively building operations like energy services/equipment and power generation. While GE has already come back from the worst of its malaise, there's still fairly solid potential left in this huge industrial conglomerate.
Worries about hardware demand continue to move stocks in the tech sector. To a large extent, the Street seems to have moderated its expectations, but EMC's (NYSE:EMC) supposed sluggish first quarter and conservative guidance seem to have some analysts concerned. Given the company's strong share across the board, EMC still looks like a great play on the hot Big Data theme.
I was surprised to see relatively little coverage of DuPont's (DD) earnings on Seeking Alpha. This is, after all, one of the largest American companies, a Dow Jones Industrial component, and a major bellwether in multiple industries. All told, then, a stock worth following. So, once more into the breach ...
With first quarter earnings rolling in, it's pretty clear that conditions in the industrial world aren't much better than "alright". In a market with normal valuations and expectations that would be okay, but with a lot of analysts expecting a strong second half and ongoing margin expansion that thesis is looking a little wobbly. Eaton (ETN) remains a solid industrial play, but the valuation today puts it in the difficult gray area between "good hold, but not a great buy".
While a lot of the financial media has more or less moved on from the U.S. banking crisis, there are plenty of banks out there that still have a lot of work to do. One of them is Tennessee's First Horizon (NYSE:FHN). This is an interesting example of the push-pull that goes with assessing a company that seems to be back on the right path (and that has a valuable franchise), but still has questions to answer when it comes to credit quality and its exposure to future losses.
When I last wrote on Seagate (Nasdaq:STX), I said that the huge uncertainties surrounding the hard disk drive market were going to make this an interesting, albeit unpredictable, stock. For most of the last quarter, though, the stock has chopped between $26 and $28 as the bulls and bears battle it out over how quickly hard drive prices will normalize and what normal even means anymore.
Utilities don't get much attention unless the topic concerns dividend investing or some major disaster. That's unfortunate, as the utility sector is seeing some pretty interesting developments in terms of mergers, deregulation, environmental rules, and fuel economics. As one of the largest utilities in the country, American Electric Power (AEP) is seeing the impact of all of these on its operations, but perhaps none so much as the oncoming deregulation in Ohio.
While investors ought to shop around and consider other dividend-heavy ideas like pipeline operators, this utility isn't a bad option for those content to sit tight and collect dividends.
Unfortunately, another quarter is in the books and the song pretty much remains the same for the steel industry. Customers are pushing back fairly successfully on price hikes, and demand in traditional steel-heavy applications just hasn't recovered as expected. Steel Dynamics (Nasdaq:STLD) still looks undervalued, but it's tough to be patient with a lagging stock in an otherwise reasonably good market.
A lot of investors seem to be permanently down on Microsoft (Nasdaq:MSFT) and its ability to compete effectively in the coming years, but the numbers tell a different story. True, Microsoft today is not the Microsoft of old and there are signs of bloat, but the cash generated by this business is both formidable and undervalued. With good growth in areas like enterprise software, and three upcoming product launches, investors ought to consider these shares.
Investors who have been waiting in the hopes of a chance to pick up Qualcomm (Nasdaq:QCOM) shares a little cheaper have gotten their wish after fiscal second quarter results. Struck between high demand for 28nm chipsets and supplier issues, Qualcomm lowered guidance and the Street punished the shares accordingly. With production problems likely a temporary setback, this may well be a good chance to build a position in a stock that is often expensive.
As I have mentioned in prior write-ups on F5 Networks (Nasdaq:FFIV), I have a certain bias with regards to this company - namely, I hope it stumbles just enough that I can swoop in and buy up some shares. As this quarter shows, not only is F5 maintaining (if not extending) its lead in its core ADC market, but it's also seeing good initial results in incremental growth markets. While the valuation remains quite high, so too is the level of execution and the total addressable market at F5 Networks.
Premium pricing has never been an obstacle to success in growth stock investing, but uncertainty about growth rates often is. To that end, while VMware (NYSE:VMW) is an operationally excellent software company, and the concerns about growth momentum do have a real bearing on its qualities as a growth stock. More to the point, this is a company that needs to see reported growth rates rebound if premium valuation is going to stay in place.
The trouble with great businesses is that they give investors so few chances to buy in at discounts to fair value, and that's the problem with McDonald's (MCD) today. While there's no reason to think that the company's share gains or excellent margins will abate, the Street already has baked in exceptional performance for many years to come. Even with this restaurant's consistent record of surpassing expectations, it looks like a bad setup for new investors.
In the cutthroat real-world market of selling pharmaceuticals, anything that's bad for your competition is probably good for you. In that sense, a recent Citizen's Petition filed with the FDA calling for the removal of Novo Nordisk's (NVO) Victoza from the market is certainly not a bad development for Amylin Pharmaceuticals (AMLN). Unfortunately, given the often over-heated debate and pancreatitis in GLP-1 drugs, this is not likely to have much real-world influence.
Growth investors have an unspoken pact with companies - they'll ignore valuations and keep pushing stocks higher so long as there are no interruptions in the growth trajectory. Unfortunately, Cepheid (CPHD) is not only a growth stock favorite but a fairly small company as well, and variability and occasional stumbles is just part of the learning curve. While the earnings-related sell-off won't bring these shares anywhere near cheap, business continues to develop along very encouraging lines.
For better or worse, IBM (NYSE:IBM) has finally gotten its due as a soup-to-nuts play on global IT spending. Unfortunately, that attention has pushed up multiples and driven a lot of the excess value out of the shares. While IBM remains a great stock to hold for the long haul, a combination of iffy near-term earnings momentum and stretched valuations could pressure the shares in the near term.
High oil prices haven't really been a boon to the energy services sector lately. As service providers encounter all manner of supply chain issues and service disruptions in the mad scramble to move from gas to oil, margins are suffering. The question for Halliburton (NYSE:HAL) investors, though, is whether or not the worst of the cycle is in sight and priced into the stock. A First Quarter Better Than Feared
When Baker Hughes (NYSE:BHI) warned the Street a little while ago, it made investors rightly nervous about what sort of quarter we were going to see from the Big Four (Baker Hughes, Halliburton, Schlumberger (NYSE:SLB), and Weatherford (NYSE:WFT)). If Halliburton's earnings are any indication, it looks like company-specific factors are going to play a major role.
While many analysts dutifully track production levels, cash production costs, and global inventory changes, sometimes that seems all but fatuous when it comes to stocks in the industrial materials sector. Although production disruptions and higher costs would indeed be bad for Freeport McMoRan (FCX), ultimately it's going to be the investor outlook for copper prices that moves the stock.
Banks took many different approaches during the crunch that followed the housing bubble; some buried their heads in the sand, some dealt with problems as they appeared, and a few swallowed hard and aggressively wrote off bad debt. BB&T (BBT) fits into the later group and though the decision to write down and sell off bad loans depressed performance for a while (and seemed to confuse or aggravate analysts), the company is seeing the benefits in a healthier balance sheet and more profitable business structure.
The basic idea behind accounting is that business owners ought to have some idea of figuring out how their businesses are doing, and that the standards applied should be relatively uniform and consistent. While GAAP accounting works well enough for the most part, it gets tricky with banks and nightmarish when applied to large, complicated money-center banks like Bank of America (BAC). Unfortunately, for all of management's claims about how strong Bank of America is, there are a lot of gaps left in this story.
Medical device manufacturer Boston Scientific (BSX) is a gift that just keeps on giving for a financial writer. With a long history of recalls, controversies, strategic shifts, and promising new technologies, to say nothing of a free cash history that reminds one of the Rocky Mountains, there is almost always something to say about Boston Scientific. While investors seem relieved that Boston Scientific reported a basically in-line quarter, the underlying results show that there's still a lot of work left to make this into a truly competitive company.
There aren't too many medical device companies out there with legitimately exciting pipelines, but St. Jude Medical (STJ) is one of them. With intriguing products in development across almost all of its operational groups, St. Jude could be looking at a significant revenue growth opportunity in the next three to five years. That said, ongoing noise and worry around the company's problematic Riata leads raises the prospect of share erosion in ICDs. For investors who can live with the risk of being wrong, St. Jude Medical looks like a pretty interesting stock today.
As a bank with a hefty portfolio of business loans in Michigan and one that bought into markets like California, Texas and Florida near the peak, it was not surprising that Comerica (NYSE:CMA) was badly bruised in the crash that followed. Since then, though, this bank has done a very good job of shoring up its capital and moving forward with its plan to be a major player in some of the most attractive banking markets in the country. Unfortunately for shareholders, it seems as though Wall Street's enthusiasm for bank recovery stories has pushed this one a little too far.
While the damage to Mexico's housing sector hasn't matched that in the U.S., the last few years have still been difficult. Lower remittances from the U.S. have slowed down many parts of the Mexican economy, including the housing sector. Business is starting to improve, though, and investors looking to play improving standards of living in Mexico and Brazil ought to take a look at Homex (NYSE:HXM).
With more than a few U.S. bank stocks still looking undervalued, it may seem crazy to think about buying a bank with large exposure to the disaster zone that is the Spanish banking sector. Yet, risk-tolerant investors with long-term horizons may well like what they see at BBVA (NYSE:BBVA). While this large global bank is not yet in the clear with respect to Spain, this company's growth-oriented global footprint is attractive, with the stock trading below tangible book.
Spain - Bad and Likely to Get Worse
Like Santander (NYSE:STD), BBVA is one of the largest banks operating in Spain, and has suffered as the economy and banking sector of Spain has flirted with collapse. Counter-intuitive as it may seem, BBVA just got even bigger in Spain. BBVA agreed to buy Unnim in a deal somewhat similar to those we saw in the U.S. during the worst of the credit crisis - a seriously distressed bank is getting taken over by a healthier player for a nominal fee and getting government support to do it. This deal will double the company's exposure to the Catalonia area of Spain.
Investors cheered when Abbott Labs (ABT) announced plans to split itself in two - separating the presumably lower-growth drug business from the device and diagnostics business. While there are still solid reasons for this split, recent clinical data releases may mean that investors should pause before making any quick assumptions on which half is going to be the "better" company.
Investors are going to need a little more patience to see an investment in Stryker (SYK) come to fruition. While this diversified med-tech player is actually seeing some solid improvements in its business, 2012 is going to be a year of re-trenching. With a new CEO on the way and some potentially interesting developments in product development, Stryker is still a name to stick with in the healthcare sector.
There's little question that Intuitive Surgical (ISRG) has been one of the all-time great med-tech stocks and arguably has claim to a spot on the all-time list irrespective of industry. Not only has the company managed to drive strong adoption in selected indications, but virtually no credible competition has emerged in the robotic surgery space. Along the way, Intuitive has successively blown through price targets and typical standards of what makes for a fair price.
Q1 - More Of The Same
In most respects, the first quarter of 2012 was a pretty typical quarter for Intuitive Surgical. Revenue rose 28% (and beat estimates), as the company coupled 32% instrument/accessory growth to 24% system revenue growth. System sales rose 17% to 140 despite some weakness in Europe, and procedure growth remained strong (up 28%).
I don't know if this is an argument in favor of the efficient market hypothesis, but I'm struck by how many large banks seem similarly under-priced on the basis of an excess return model. While the projected return on equity and discount rate for Citigroup (C), JPMorgan (JPM), U.S. Bancorp (USB), and Wells Fargo (WFC) are all different, the resulting fair values suggest about 30-35% return potential.
In the case of Citi, though, it's a rather different risk-reward trade-off than for the others. Citigroup has by far the largest global retail banking franchise and the most upside if ROEs recover further than expected, but also arguably the worst risk management and the most work yet to be done in repairing the balance sheet and business.
Some investors love to parrot the thesis that the aging of America will be a boon to health care companies of all stripes. What these investors aren't always able to explain, though, is who is going to pay for all of that growth. That's a key issue with home oxygen therapy provider Lincare (LNCR). While efforts to diversify the business are pressuring margins and cash flow in the near-term, long-term investors should support these as moves towards better long-term sustainability.
First Quarter Results Not Bad On Balance
Revenue growth of 16% looks pretty flashy, but organic growth was a more modest 6%. Lincare saw a 1% negative impact from Medicare rate changes, with about 11% growth coming from various acquisitions. Interestingly, patient growth was the slowest it has been in some time (up about 2%), while revenue per patient rose by double-digits.
One of the trickiest parts of investing is figuring out that fine line between opportunism and greed. Take the case of J.B. Hunt (Nasdaq:JBHT). This transportation company is seeing excellent growth in its intermodal business, and intermodal transport is likely to be a strong multi-year growth story. On the other hand, expectations are already pretty steep and competition is sure to ramp up. That makes this a tricky hold, as results are likely to stay strong for a while, but today's valuation makes long-term underperformance more likely. A Strong Start to the Year
J.B. Hunt definitely offered up a solid start to this year. Total revenue rose 17%, fueled by a 20% rise in the intermodal business. Truck revenue and dedicated service revenue were up much more modestly (8 and 7%, respectively), while the smaller Integrated Capacity Solutions business saw strong 30% growth but remains a relatively small operation.
While there was a long stretch where bank stocks were virtually untouchable and investors had plenty of bargains to choose from, a great deal more investor interest has pushed up the space. That puts even more of a premium on identifying those well-run banks with above-average growth prospects. While Wells Fargo is not flawless, and its above-average consumer exposure is a risk factor, this is still a stock for investors to seriously consider.
First Quarter Results - Mostly Good
Wells Fargo had a few nicks and dents in its Q1 results, but the performance was solid all in all. Operating revenue rose 6% from last year to about 3% sequentially, with pre-provision net revenue up about 2% sequentially.
For writers, Coca-Cola (NYSE:KO) is either the best or worst of companies to follow because nothing really ever changes. Coca-Cola continues to execute a well-crafted business plan with efficiency and continues to leverage one of the best brands in the world. What's more, the stock continues to be expensive as investors prefer to pay a premium for security.
Solid Volume in First Quarter
Coca-Cola certainly had little trouble getting consumers to drink more soda, water and juice in the first quarter. Global case volume was up 5%, as North America (up 2%), Asia (up 8%) and Europe (up 1%) were stronger than many expected and helped offset slight weakness in Latin America (which was still up 5%). Price and mix improved about 3%, while currency headwinds reduced reported revenue growth to 6%.
Unlike biotech, where the name of the game seems to be finding optimism in every bit of news, quite the opposite seems to be true in established tech names. So while Google's (Nasdaq:GOOG) business continues to grow well and produce copious cash flow, attention seems to inevitably go to the relatively few problem areas or controversial bits of the story. That said, Google shares still look as though they are priced for fairly modest performance.
Fiscal First Quarter Results Come in Well
Google posted solid results for the first quarter. While revenue was flat sequentially, it did climb 24% on an annual comparison. Website revenue was up nearly 24%, while network revenue was up 20%. Paid clicks climbed 39%, while cost per click was down a more-than-expected 12%.
It's hard to remember the last time the Street was really hot on Forest Labs (FRX). Although this company has shown a pretty surprising resilience and an uncanny ability to find good licensing deals, analysts seemingly can't move past the admittedly huge ramifications of key drug Lexapro going generic. It's not as though Forest Labs has been caught flat-footed, though, and there seems to be value in Forest's pipeline than the Street can see.
Johnson & Johnson (JNJ) is in a rut, but at least it happens to be a very profitable rut. What's more, the company has a lot of a game-changing events underway or just on the horizon. Not only has there been a change at the top, but new drug launches, a major acquisition, and annualizing some very bad comparisons should make the business look pretty solid by the end of 2012.
For Now Though, It's Still A Rut
That said, J&J didn't blow anybody away with first quarter results. Revenue was basically flat (though up 1% in constant currency), as pharmaceuticals did alright (up more than 2% cc), devices did alright (up less than 1% cc), and consumer was not alright (down a bit in constant currency). All in all, it was a slightly disappointing topline result with a few weak spots that merit further inquiry.
It was a testament to U.S. Bancorp's (USB) operating philosophy and disciplined underwriting strategy that the bank didn't make a lot garbage loans that came back to haunt it, nor did the bank hamstring itself like Wachovia or Bank of America (BAC) by paying premiums to acquire ticking time bombs. While some analysts and investors feared that new regulations governing fees would decimate what had been a real honeypot for U.S. Bancorp in years past, U.S. Bancorp earnings continue to show that while that operating environment changes, U.S. Bancorp remains a reliably well-run bank.
ICU Medical (ICUI) is an uncommonly squirrely stock. Although infusion therapy and critical care products are not exactly missionary sales, ICU Medical's stock as been uncommonly volatile due in large part to unpredictable sales trends. What that means for investors is that they have to fight their instincts and get bold during the tough quarters and get a little cautious when the stock is doing especially well.
Reasonable Performance For Q1
ICU Medical's performance in the first quarter was solid, albeit not spectacular. Overall revenue rose nearly 6% and slightly beat the average sell-side guess. Infusion therapy sales were pretty solid (up nearly 10%), and oncology continues to grow nicely (up 30%), but critical care is still the problem child (down over 14%).
There are certain dusty corners of biopharma where most investors just don't look all that often, and eye care and skin care are high on the list. While the addressable markets are well short of what investors expect from areas like oncology or autoimmune disease, the relative lack of competition can make these profitable niches. As under-followed ISTA Pharmaceuticals (ISTA) recently rode a limited roster of products to a worthwhile takeout price, investors may want to consider DUSA Pharmaceuticals (DUSA) for similar potential.
Arguing with the market may be a great way to get rich slowly, but it can also be an excellent way to get poor quickly. Fastenal's (FAST) valuation left the surly bonds of reality a while ago, but shorting the stock would have been quite painful until about the past two weeks. While Fastenal's model seems poised to continue delivering growth highly leveraged to manufacturing sector expansion, valuation makes this more of an economic momentum play than a rationally-valued security.
First Quarter Results - Good, Apart From A Worrisome "But"
For the most part, Fastenal delivered a very solid performance in the first quarter. Relative to other industrial suppliers like Grainger (GWW) and MSC Industrial (MSM), Fastenal continues to be the growth story and revenue jumped 20%
Please continue here: Fastenal Amazing In At Least 2 Respects
Banks are looking less distressed these days, but nobody really knows what the new normal is going to look like. Regulatory changes may lower long-term return on equity relative to past levels, but banks have a knack for finding new sources of revenue. The question for M&T Bank (NYSE:MTB), then, is how successful the company is in building on its large Wilmington Trust acquisition and whether it can exceed historical returns.
A Solid First Quarter
In many respects, M&T Bank's first quarter is a lot like the fourth quarter. Net interest margin was a little better than expected, non-interest income was a little better and expenses were a little higher.
As property and casualty insurance companies go, Progressive (NYSE:PGR) is an exceptionally well-run one. Memorable advertising gets the company noticed, but it's the innovation in underwriting that has allowed the company to generally match industry pricing while realizing superior returns. Given the recent rebound in the price, though, investors may want to wait for a better entry point on these shares.
First Quarter Results Progressive reported that net written premiums rose almost 7% in the first quarter, showing a little more momentum later in the quarter. Direct premiums rose about 7%, while agent premiums rose about 5%. With many auto insurers boosting rates in response to above-trend losses, it looks as though Progressive is gaining some share.
Being the first major bank to report earnings has had its ups and downs for JPMorgan (JPM), and it's pretty clear that the market was not overly fond of this bank's over-complicated first quarter results. All of that said, underlying reported results were pretty solid and the bank remains undervalued on the basis of not especially challenging ROE performance in the coming years.
First Quarter Results - Complicated, But Not Bad
Sifting through all of the charges, gains, and items in a major bank's earnings report is a yeoman's task, and JPMorgan's first quarter was no exception. While the bank's results were pretty good relative to sell-side expectations, they weren't so strong on an absolute basis.
Using a 36-year old movie reference to introduce a tech stock ("Is it safe?" from "Marathon Man") may not be the best approach, but it's a worthwhile question to ask with Adtran (Nasdaq:ADTN). Adtran is an unusually high-quality company with solid share and good growth potential in "last mile access," but the company is critically dependent on carrier spending and that makes the timing of any recovery much harder to forecast.
First Quarter Results Bad ... As Expected
Adtran made it pretty clear a month ago that carrier spending wasn't rebounding sharply in the first quarter, as the company preannounced a very disappointing quarter. Revenue fell 23% sequentially (and 19% from the prior year) and came in almost one-quarter below original expectations.
Turnarounds are hard, particular when there are vibrant competitors doing most things right. In the case of Nokia (NYSE:NOK), though, investors have to not only digest the relative superiority of competitors like Apple (Nasdaq:AAPL) and Samsung, but what also looks to be a lot of self-inflicted wounds. With yet another downward guide and some troubling operational errors, it is harder and harder to support the idea of Nokia as a deep-value turnaround.
Ugly Guidance Nokia warned the Street on Wednesday that its financial results for the first and second quarters were going to be dismal. Whereas the Street was looking for Device and Services revenue of about 4.88 billion euros in the first quarter, the company announced that the number would be around 4.2 billion euros.
Titan Machinery (Nasdaq:TITN) highlights some of the risks and rewards of highly-valued growth stories. While the stock did very well in response to blowout earnings, the stock had actually languished over the past year with some pretty unnerving dips along the way. Although the company's cash flow situation is going to be a hang-up for some value investors, this remains an interesting company all the same.
Closing the Year With a Bang
Titan Machinery certainly delivered the goods when it came to fiscal fourth quarter results. Revenue jumped 65%, on a 66% increase in equipment sales. Growth was strong in both equipment categories, as agriculture sales rose 58% and construction sales rose 120%. While Titan has been a busy acquirer, same-store sales growth was up a robust 41%.
The Best Buy (NYSE:BBY) saga continues to twist and turn, with the latest development being the surprising resignation of CEO Brian Dunn. While this sort of major shake-up may be seen as yet another distraction and setback for a company struggling to find a new foothold in the electronics retailing world, the downside seems pretty limited. At this point, the market continues to price Best Buy for failure and shareholders may have reason to hope that the company can use this opportunity to make a clean break with a failed approach.
A Change at the Top
While now-former CEO Brian Dunn had a reputation as an operations-minded executive, it's hard to see how that did the company any good. Under his leadership, the company continued to over-expand and ignore the fact that online retailers like Amazon (Nasdaq:AMZN) and Wal-Mart (NYSE:WMT) had already sapped their walls. Just as bad, Best Buy seems to have plunged headlong into China without really understanding the market or how to compete with other rivals like Gome.
Although the economy is slowly getting better, commitments to major engineering and construction projects are still scarce and erratic. Making matters worse for Shaw Group (NYSE:SHAW), there's still a great deal of uncertainty in the U.S. power space as it pertains to licensing new nuclear facilities, retrofitting old plants and building new fossil-fuel power stations. While Shaw Group does look like a potential value today, investors have to be willing to exercise patience to see that value come to light.
Mostly Good News for the Nuclear Business
While Japan's Fukushima disaster chilled the nuclear power market, Shaw is seeing respectable progress in this large business. SCANA (NYSE:SCG) and Southern Co. (NYSE:SO) have both gotten the go-ahead to move forward with nuclear plant projects, which de-risks a substantial part of Shaw's backlog. On the other hand, while there's still hope that Progress Energy (NYSE:PGN) (in the process of being acquired by Duke Energy (NYSE:DUK)) will get the go-ahead of a new facility in Florida, the company has been beset by a variety of problems with its nuclear plants.
While the "will they or won't they" battle for Illumina (ILMN) is certainly the biggest headline-grabber for Roche (RHHBY.PK) right now, this Swiss giant is also seeing respectable progress in the business. Though I believe Roche remains one of the best long-term picks in healthcare, the relative performance of the shares no longer leaves it as the cheapest option in the sector.
Q1 - Steady As She Goes
Like many European companies, Roche isn't exactly geared to focus on quarterly performance. Nevertheless, revenue rose 2% in constant currency (down 1% in Swiss francs and up 1% in U.S. dollars) and actually beat most analysts' expectations though different sources report different numbers for the average sales estimate.
With bank branches blanketing the United States, Canada and most of Western Europe, and seemingly everyone holding some sort of debt, it seems hard to imagine what an under-banked market might look like. Look no further than Peru, then, where significant economic growth and increasing penetration of retail banking services is driving a great growth story for Credicorp (NYSE:BAP).
What's Under-Banked Mean?
There's ample room to argue about what the "right" level of banking activity in a country is and the best way to measure it. For sake of simplicity, I'm going with loan-to-GDP. In developed countries, that ratio is 137%. In Chile, which in many respects is the most "European" of South American countries, the ratio is 86%, while the ratio drops to 57% in Brazil.
If you can reliably reduce costs for healthcare facilities, you're going to be quite popular. To that end, Healthcare Services Group (Nasdaq:HCSG) has indeed built a very appealing and scalable business in providing housekeeping, linen/laundry and dining services to healthcare facilities. While this company has a pretty compelling dividend story, the valuation is a bit confounding.
Cost Challenges Bite into First Quarter Results
Although Healthcare Services did well on the top line, cost control proved to be a more challenging situation. Revenue rose 25%, as the company continues to see solid performance in its core housekeeping/laundry services, but also impressive growth from dietary services, as more clients add these services.
Alcoa (NYSE:AA) deserves a lot of credit for managing a difficult aluminum market and continuing to make productivity improvements. Unfortunately, the market doesn't reward feel-good stories. Accordingly, while Alcoa shares continue to look cheap and the long-term aluminum market fundamentals look better, it seems probable that these shares won't really work until aluminum prices get going again. A Pretty Strong First Quarter, Relatively Speaking
Alcoa's first quarter wasn't great in absolute terms, but the company did do a fair bit better than expected and Wall Street is all about relative performance.
How significant is National Oilwell Varco (NYSE:NOV) in the world of rig equipment? You can look at the company's over 60% market share for rig equipment, the fact that roughly 90% of rigs have some NOV equipment on them or you can just look at the company's nickname - "No Other Vendor." This makes NOV something of an all-comers pick for energy investors. Worried about whether you should invest in oil or gas? NOV's equipment serves both markets, and likewise for onshore and offshore - though offshore looks like the best growth opportunity for the company right now. Rinse and Repeat
NOV has a habit of not only generating respectable cash flows, but also using it to build the business, as the rough $6.2 billion in goodwill on the balance sheet might indicate. It has been good about its M&A, though, using it to build share and drive efficiencies in the acquired businesses.
Like many other biopharmas taking on the diabetes market, Biodel (BIOD) has had pretty serious setbacks. The decision to abandon the original Linjeta absolutely hammered the stock, and it is true that the company is a very speculative stock at this point. That said, with a near-term glucagon program that has relatively lower clinical risk and multiple attempts at the insulin market still in hand, it may be premature to completely close the book on this stock.
Can Glucagon Fill A Gap?
Biodel's nearest-term opportunity is with its glucagon rescue program. Glucagon is a naturally-occurring hormone produced by the pancreas to raise blood glucose levels. In healthy individuals, this is part of the normal blood glucose regulation process.
Here and there, investors are already seeing certain stocks recovering on the expectation of improving commercial construction activity. To a certain extent, American Reprographics (NYSE:ARC) has been one of them, as the stock has rebounded significantly (on a percentage basis) from its lows in the fall of 2011. That said, there looks to be plenty of opportunity left in these shares if recent signs and portents really do mean that better commercial building activity is on the way.
American Reprographics is the largest company in the reprographic services industry, with somewhere in the neighborhood of 15% market share. In fact, because there are so few competitors of any size (ARC is about 10 times the size of its largest competitor), it's actually a little difficult to calculate how much share they have - particularly since the multi-year downturn in commercial building activity has pushed many small companies out of business entirely.
Edwards Lifesciences (EW) has done a lot of good things - foremost among them being the decision to move beyond its stable, unexciting legacy businesses into more dynamic and more profitable markets. It's a model that St. Jude Medical (STJ) has used to good effect, and it has certainly made this a much more interesting company over the past three years.
The problem, though, is whether or not investors have gotten a little too excited about Edwards Lifesciences and its transcatheter heart valve products. While transcatheter aortic valve implantation (TAVI) is a legitimate breakthrough in medical technology and likely to be a multi-billion dollar market, investors seem to have overshot the mark. Even as Edwards stock has come off about 20% from its highs, current valuation still presupposes a huge level of market transformation.